One of the most exciting technologies that build on top of Bitcoin is called Colored Coins and it launched Today with Coinprism, a web based wallet that brings Colored Coins and the Open Assets open source protocol to life.

Colored Coins allows users to take small fractions of bitcoins and add a secondary value to them. In practice this lets people create new assets and use Bitcoin's network to secure and trade these assets. This simple idea opens up a wide range of possibilities.

For example you can start a company and let Colored Coins represent the ownership of the business. Your investors can trade their Colored Coins representing your business easily as easily as if they were sending bitcoins.

Exchanges can create Colored Coins dollars that will represent real dollars and people will be able to send each other these dollars easily to avoid any possible volatility of Bitcoin. Today sending fiat currencies is expensive, restrictive and/or slow. Soon it will cost as little and will be as fast as sending Bitcoins.

Colored Coins can also represent precious metals, property and can be used for marketing purposes by multinational companies that need a frictionless global currency that works online and in mobile apps.

How does Colored Coins affect Bitcoin?

Colored coins make Bitcoin's network and bitcoins themselves more valuable because it adds a significant new functionality.

Widespread use of Colored Coins would have two main effects on Bitcoin:

Increase in demand for bitcoins, because you have to have BTC in order to manage and send your Colored Coins around.

Increase the number of small BTC transactions. This will put a pressure on the Bitcoin network, but it will also generate more income in fees for miners.

I'm a farmer and have 100 apples. Am i correct in that I can issue 100 shares for my apples?

When I sell an apple colored coin what happens to the coin when the apple is eaten? Does the time-stamp just act like a receipt?

When the apple is eaten, the counterparty assigns it to another apple or recolors it.

So for clarity, the buyer destroys the coin upon taking possession of the apple? or only after the apple has been eaten?(edit)or do they just keep both apple and coin and who cares if the apple has been eaten, we're not buying it back.

Let's say I want to grow an apple tree. I need money for fertilizer, insecticide, and water. I can supply the seed, the land, and the labor. So to raise money for this venture I sell applecoins* expecting to get a yield of 1000 apples in a season (we have fast growing trees). I sell 100 colored coins to cover those costs and will give each colored coin owner 5% of the yield rounded down to the nearest whole apple and then will offer a discount on apple pie to the applecoin holders as well. To redeem the colored coins for the apples, you must send them back to me.

*screw you Apple, Inc.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.

Colored coins are IOUs so it is always possible for the issuer to misrepresent the underlying assets. It's up to you to ensure that the IOUs outstanding is reasonable based on your ability to deliver. This is not a bad thing, as you may be a very trustworthy apple producer and always honour convertibility of the the apple-IOUs into real apples.

However, if you suspend redemptions in the future because you were operating a fractional reserve apple farm and there was a "run on your apples," then the value of the apple-IOUs outstanding will fall below the market value of other apples of commensurate quality. Your customers who were regularly buying apple IOUs from you (effectively futures contracts which helped you pay to grow the apples) may not want to purchase from you anymore and this would hurt your business.

Coinprism is only a wallet. You supply the bitcoins to fund your IOUs.

Right--talking about "premine" doesn't even make sense. The coloring process is a tool that any bitcoin user can use to create IOUs or digital representations of other assets. It is the "pen and paper" to create the IOUs, not the IOUs themselves. If you want to create your own IOUs by coloring coins, there is nothing to buy so long as you have a small amount of bitcoins.

These are not some new foo-coin, they are simply a new way to use bitcoins and the blockchain ledger. If colored coins become popular, then it will help to increase the demand to hold bitcoins.

EDIT: coinprism is like a paintbrush for coloring your bitcoins. Uncolored bitcoins go in (white light) and all sorts of colors can come out:

This is huge. This is the "killer app" people have been waiting for. If you aren't familiar with the colored coins concept it would definitley be worth your time to do a you tube search. Make some coffee before you start.

Let's say I want to grow an apple tree. I need money for fertilizer, insecticide, and water. I can supply the seed, the land, and the labor. So to raise money for this venture I sell applecoins* expecting to get a yield of 1000 apples in a season (we have fast growing trees). I sell 100 colored coins to cover those costs and will give each colored coin owner 5% of the yield rounded down to the nearest whole apple and then will offer a discount on apple pie to the applecoin holders as well. To redeem the colored coins for the apples, you must send them back to me.